Indo-Netherlands BIPA pact doesn't cover taxation: FinMin

New Delhi: The Income Tax department has rebutted Vodafone's notice under BIPA saying that the pact between India and Netherlands does not cover taxation issues.

"Tax department has sent its response to Vodafone saying BIPA does not cover tax issues," an official source said.

The response to the Bilateral Investment Promotion and Protection Agreement (BIPA) notice was sent out after the Cabinet turned down revenue department's proposal seeking to withdraw conciliation offer. This was after Vodafone pressed for including transfer pricing case in its ambit and carrying negotiations only under United Nations Commission on International Trade Law (UNCITRAL).

The Cabinet, however, has left a window open now by not withdrawing Vodafone conciliation talks for settling the Rs 20,000 crore tax dispute until a separate case over transfer pricing is settled by a tribunal.

The transfer pricing case pertains to sale of the Vodafone's call centre Vodafone India Services (VISPL) to a Mauritius-based company and valuation of shares.

UK-based Vodafone is in a capital gains tax dispute with the Indian government that relates to 2007 acquisition of Hong Kong firm Hutchison Whampoa's stake in Hutchison Essar.

While the basic tax demand for the acquisition is Rs 7,990 crore, outstanding dues, including a penalty of a similar amount and accrued interest, run into Rs 20,000 crore.

Vodafone had on January 10 served a supplementary notice to India invoking the India-Netherlands BIPA in which it said that dispute in respect of transfer pricing case between Vodafone India Services (VISPL) and Vodafone International Holdings BV (VIHBV).

The Cabinet had in June 2013 approved a Finance Ministry proposal to go in for conciliation with Vodafone to resolve the tax dispute.

The talks, however, broke down after Vodafone issued a supplementary notice to the government, invoking the BIPA and demanded that a separate transfer-pricing case be clubbed with the capital gains tax matter.

The company wanted to club a Rs 3,700 crore transfer- pricing case of VISPL with the capital gains tax issue. The transfer pricing matter is pending in the Bombay High Court.

On the capital gains case, the Supreme Court had ruled in Vodafone's favour in 2012, saying it was not liable to pay any tax over the acquisition of assets in India from Hong Kong-based Hutchison.

Later that year, the government changed the rules to enable it to make retrospective tax claims on such deals, including that of Vodafone.